IRS modernization budget needs more funding

Two organizations that monitor the IRS agree that the tax agency's Business Systems Modernization should receive more funding than what the administration has proposed so the program can move forward faster.

The IRS has put its modernization program on track and should merit a bigger budget to accelerate its progress, both the Government Accountability Office and the IRS Oversight Board told lawmakers yesterday.

The administration proposed $167.3 million, $29.3 million or 15 percent less than last year's $197 million, in the IRS' fiscal 2007 budget for the Business Systems Modernization program.

Reduced funding means modernization will take longer and cost more.

The performance of the IRS' modernization program has improved steadily, said David Powner, director of GAO's IT management issues.

'It is one of the better programs over the last couple of years. It would be prudent to increase its budget slightly,' he told the Senate Appropriations Subcommittee on Transportation, Treasury, the Judiciary, HUD and related agencies. He did not say by how much the program budget should be increased.

The IRS Oversight Board, however, recommended adding $188.6 million more than last year's $197 million for a total of $385.6 million, in part because the IRS had suffered severely reduced funding levels in the last three fiscal years, said Raymond Wagner Jr., chairman of the advisory group. The board wants IRS to accelerate the pace of the BSM program. The IRS is still hampered in its efforts to modernize because of its reliance on its 40-year-old Master File system for its central record-keeping functions.

'No modern financial institution in the private sector could survive under these conditions, and eliminating these limitations is key to making the IRS an efficient and effective modern financial institution,' Wagner said.

During this year and fiscal 2007, the IRS will emphasize the release of major projects that deliver value sooner at lower risk in tax administration, infrastructure initiatives that support all modernization project and continued improvement to program management.

The IRS has used its modernized taxpayer database CADE to process more than 6.4 million returns and disburse 5.3 million refunds worth $3 billion as of April 14. Refunds are issued within six business days after returns are posted to CADE. Not only does it speed up refunds, but it also updates taxpayer account information quicker than the legacy Master File system, Everson said.

IRS plans to expand CADE processing to 33 million returns in the 2007 filing season and 70 million by 2009.

BSM is still a high-risk and highly complex effort, but it is critical to supporting IRS' taxpayer service and enforcement goals, Powner said.

'The proposed reduced funding level would likely affect the agency's ability to deliver the functionality planned for the fiscal year and could result in project delays and/or scope reductions,' he said.

Shrinking the budget will slow the momentum of systems modernization, said Sen. Christopher Bond (R-Mo.), chairman of the Senate Appropriations subcommittee. 'Cutting BSM is equivalent to punishing good behavior,' Bond said at the hearing on the IRS budget.

Business Systems Modernization should be the IRS' top priority because of its impact on customer service and tax enforcement and, ultimately, lowering the $345 billion tax gap, which is the difference between what taxpayers pay and what they actually owe, Bond said.